How MCA repayment works, from the wire to the last debit

Most owners understand an advance the way they understand a truck payment: a fixed obligation that gets smaller and eventually ends. An advance does not work that way, and the difference shows up on a specific calendar. Here is that calendar, start to finish, with a hypothetical deal running through it.

The example: $60,000 funded, a 1.32 factor, a purchased amount of $79,200, and a daily remittance of $600 over an estimated 132 business days. Annualized, that prices out near 111 percent. Every figure below is illustrative.

Day zero, the wire

The money arrives net of fees, usually the next business morning. On the same day, three things happen that you will not see in your inbox.

The funder files a UCC-1 financing statement under Article 9 of the Uniform Commercial Code, publicly claiming your receivables. Your ACH authorization goes into the funder's processing queue with your account and routing numbers. And the broker earns a commission out of the spread, which is one reason the term you were offered was as short as it was.

Days one to three, the first debit

Most contracts start pulling the next business day. Some allow a short grace period. The first debit is the one to inspect closely, because it tells you whether the amount matches your paperwork. Errors here are common enough to be worth a five minute check: transposed figures, a debit that starts on a Sunday posting schedule, or a second smaller pull for a program fee.

Week one, the rhythm sets

Five debits of $600 is $3,000 gone in the first week. Nothing about that changes for the rest of the term. There is no ramp and no seasonal adjustment.

This is where the difference from a loan becomes concrete. A term loan takes one payment a month and leaves you thirty days to build the balance. An advance takes a slice every morning, which means your operating float, the cushion you actually run the business on, is permanently smaller by about a week of debits.

Month one, what the statement shows

A typical month has 21 or 22 business days, so month one costs $12,600 to $13,200.

Pull the statement and put that number next to your deposits. The ratio you get is the only performance metric that matters on an advance. If your monthly revenue is $130,000, the debit is consuming 10 percent. That was probably the specified percentage in your contract, and at 10 percent the deal is doing what it was underwritten to do.

The midpoint, where the structure surprises people

After 66 debits you have delivered $39,600 and you still owe $39,600.

Call for a payoff figure at this point and you will be quoted the remaining purchased amount, not a discounted balance. There is no unearned interest sitting in the contract to give back. Paying it off in month three costs exactly what paying it off in month six costs.

Some funders will discount a payoff voluntarily, because getting capital back early lets them redeploy it. It is worth asking for in writing. It is not something the agreement owes you.

The second thing that happens at the midpoint is the renewal call, and it is worth knowing what that offer really is before it comes.

When deposits fall, the reconciliation window

Say revenue drops from $130,000 a month to $91,000. The debit does not move. It is still $13,000 a month, which is now 14.3 percent of everything coming in, not 10 percent.

That gap is what a reconciliation clause exists to close. Read yours and note three things: whether reconciliation is automatic or on request, what documents it requires, and the deadline. Requests are frequently denied for the same reason: sent late, or sent without the bank statements and processing reports the clause specifies.

Send it in writing, attach what the clause asks for, and keep the timestamp. Verbal requests to a servicing rep leave you with nothing to point at later.

Month four or five, the renewal call

Somewhere between 50 and 70 percent delivered, the phone rings with an offer to renew. It is presented as new working capital, and on the surface it looks like relief.

Here is what a renewal actually does. Say $47,500 has been delivered and $31,700 remains. The renewal advances $70,000 at a 1.38 factor, so $96,600 is owed. Of the $70,000, the funder keeps $31,700 to retire the old balance, and roughly $38,300 reaches you before fees.

You are now paying a 1.38 factor on the full $70,000, including the $31,700 that never leaves the funder. That is about $12,000 of new cost charged on a balance that already carries the first advance's factor, and that never reaches your account. The daily debit resets higher and the clock starts over.

Renewals are not automatically a bad decision. They are a bad decision when they are used to cover the debits from the advance being renewed, which is the situation almost every renewal call is timed to catch.

Getting a payoff figure

Ask in writing and ask for three things: the remaining purchased amount, the good through date, and whether any discount applies to an early payoff.

Expect the answer to be the full remaining balance. If a discount is offered, get it in the same email that quotes the figure, with the expiry date, before you wire anything. Verbal payoff quotes that shift by a few thousand dollars between the call and the wire are a recurring complaint in this market.

Missed debits, and how the count works

A returned debit triggers a returned item fee at your bank, a rejected payment fee under the contract, and usually a re-presentment. Note that business ACH entries do not carry the long dispute window consumer accounts get. Under the NACHA Operating Rules, the return timeframe on a corporate debit is measured in banking days, not weeks.

What matters more than any single return is the running count. Many agreements define default as a set number of returns inside a rolling period. That is a structural problem on a daily schedule, where one difficult week can produce three misses.

The last debit

The contract ends when the purchased amount has been delivered. There is no payoff letter unless you ask for one, and the UCC-1 does not lift on its own.

Request two documents in writing: a zero balance confirmation, and a UCC-3 termination. Section 9-513 of the Uniform Commercial Code gives a secured party 20 days to file the termination after an authenticated demand when nothing remains owed. An abandoned lien on your receivables will surface at the worst possible time, usually mid application with a bank.

Where you sit on the calendar changes what is available

One advance presents three different problems depending on how much of the purchased amount has already been delivered, and the room to move narrows as the balance does.

Inside the first third. Little has been delivered, the funder still has most of its capital outstanding, and reconciliation is the natural instrument. A documented request that arrives while the deal is still performing reads as maintenance rather than distress, and it is the cheapest correction available at any point in the term.

Around the midpoint. This is where the renewal call lands, and where the two paths separate hardest. New money taken to cover the existing debit resets the clock at a higher number and charges a fresh factor on the balance being retired. Renegotiating the existing remittance does neither. What gets decided in this window usually settles whether there is ever a third advance.

In the last stretch, with a small balance and a large debit. The remittance is now taking a disproportionate share of revenue for a short remaining period. Funders tend to be least flexible here, because the finish line is close from where they are sitting, and the question becomes whether the remaining weeks are survivable without borrowing to cover them.

One condition overrides all three. If a second advance is already funding the debits on the first, the calendar has stopped being the thing to manage. What stacking does to the daily total is, and that does not resolve itself by waiting for the last debit.